The paper examines the successes and failures of the wheat market/price policy in Pakistan and explores alternative options. It starts by describing the current wheat policy and then evaluates its effectiveness based on its original goals of ensuring food security and price stability. To measure food security, it looks at the percentage of undernourished individuals and the average calorie deficit among malnourished people. For assessing price stability, it analyzes the variation in farm gate prices of wheat compared to other South Asian nations.
Based on FAO data, it is evident that policy has severely missed the mark in achieving food security goals, while it has achieved acceptable results in ensuring price stability. The introduction emphasizes the crucial role of wheat in Pakistan and its influence on the consumption choices of the impoverished population, thereby affecting food security. Given the significance
...of wheat in the lives of urban and rural poor, the food price policy in Pakistan has garnered significant attention.
Sadly, the wheat pricing in Pakistan has been more influenced by political considerations than economic rationale. The country has implemented interventionist policies in the agriculture sector, but the extent of divergence from the open market equilibrium differs across various agriculture commodities. The interventions in the wheat market aimed to achieve two objectives: ensuring food security for a larger population and protecting domestic producers from price fluctuations in global markets.
The aim of this paper is to assess the wheat price policy and the factors that influence its formation, as well as the effects of various pressure groups and stakeholders. Furthermore, the paper examines the government's success in achieving its initial goals of providing food security for consumers and
price stability for producers. The achievement of the first objective is evaluated by analyzing trends in the number of undernourished individuals and the average per capita calorie deficit among the undernourished over time, as these are widely recognized indicators of food security.
The achievement of the second objective is assessed by calculating the difference in domestic price and comparing it to the volatility of the world price. Once the level of success of this policy is determined, we identify some drawbacks of implementing such a policy and how certain groups like flour mills, retailers, and food departments have unintentionally benefited from it. After considering the advantages and disadvantages of the current policy, recommendations are put forward to enhance and better facilitate the accomplishment of its intended goals.
In addition, alternative methods and policies are proposed to better achieve the aforementioned goals. The paper is structured into five sections. Section 1 offers a brief background on agriculture price policy, with a specific emphasis on wheat. Section 2 presents an overview of the current pricing, procurement, and distribution policy for wheat. The third section examines the successes and failures of the wheat policy in relation to its original objectives. The fourth section suggests enhancements to the current strategy and presents some alternative options. The fifth section concludes the paper. Section 1: History of Wheat Price Policy.
In order to understand the current policy for procuring and marketing wheat, it is crucial to comprehend its evolution over the years. The history of wheat policy can be categorized into three distinct phases that align with specific governments' tenures. The initial phase occurred between 1961 and 1971, primarily under Ayub's government. The second
phase coincided with Bhutto's administration from 1971 to 1977. Lastly, the third phase encompassed the period from 1977 to 1988, under Zia's regime (Hamid, Nabi, and Nasim). Later in this section, we will delve into how policies implemented during each of these phases differed significantly from those implemented in other time periods.
The initial phase of the wheat market in Pakistan was characterized by limited government intervention. Instead of directly intervening, the government mainly relied on overvalued exchange rates, which affected all crops uniformly. In the 1960s, Pakistan imported wheat through the PL 480 program. However, this aid was stopped after the conflict with India in 1965, leading to a nationwide shortage of wheat and other grains. As a result, the government had to offer incentives to farmers, such as higher procurement prices and input subsidies.
Before the war, private traders were allowed to distribute goods within specific price limits. However, shortages following the war led to the government reintroducing rationing, which lasted until 1960. The second phase (1972-76) had a negative impact on Pakistan's economy and impeded the progress achieved in the previous decade. This period was characterized by interventionist policies, with nationalization playing a crucial role in these policies.
Bhutto’s government implemented a nationwide nationalization effort, which involved the nationalization of all flour mills. This move also resulted in the government gaining a monopoly over procurement, leading to the exclusion of private traders from the market. Furthermore, the distribution system was expanded through ration shops, with the consumer subsidy on wheat reaching 10 percent of the government budget at one point. Following Zia’s government taking charge, corrective measures were implemented to rectify the mistakes made by
the previous administration. These measures included the swift denationalization of wheat mills.
The government gradually began to withdraw from the procurement and marketing of wheat and other agriculture commodities. Although the government still set the prices of wheat, the private sector played a larger role in marketing it. In 1977, the ration system became necessary as over 75 percent of the wheat sold was through this system. By 1985-86, this percentage had decreased to 30 percent and in the following year, wheat rationing was completely stopped. Recently, the current government increased the procurement price of wheat from Rs 510 in 2008 to Rs 950 in 2010 in order to raise the income of poor farmers and improve rural living standards. In 2009, the Punjab government set ambitious wheat procurement targets that placed a heavy burden on the provincial budget. For the first time in 10 years, the provincial budget went into overdraft and Punjab had to borrow from the federal government and reduce development expenditure.
Continuing on, the wheat market and current wheat policy will be further discussed in the following section. Unlike rice and cotton, which have shifted towards a market-oriented approach, the government of Pakistan still plays a major role in procuring and distributing wheat.
The exemption of wheat from the current wave of liberalization is influenced by its strategic significance as a staple crop and the pressures exerted by various interest groups who benefit from this policy. The economic survey of Pakistan 2010-11 states that approximately 25 million tons of wheat were produced in 2011, with two-thirds used for domestic production and one-third sold. This resulted in an estimated surplus of around 8
million tons available for sale in 2011. The governments of Punjab and Sindh have announced plans to purchase 4 and 1.3 million tons respectively, with PASSCO assigned to procure 1.3 million metric tons. For this year, the federal government has set a support price of Rs 950 per 40 kg for wheat, which is determined after considering recommendations from the Agriculture Policy Institute (API) before the sowing season.
The API, previously called APCOM, analyzes multiple factors including projected production, estimated costs, and global prices to make price recommendations to the federal government. The cabinet, after considering the API's recommendation, announces the wheat procurement price. While the federal government sets the procurement price of wheat, the actual procurement is under the jurisdiction of the provinces who independently determine the procurement targets.
After the harvest, wheat is purchased by the provincial governments through the provincial food department and PASSCO (Pakistan Agricultural Storage and Supplies Corporation). These departments then establish wheat purchase stations in various provinces to buy wheat from farmers at a pre-arranged price. Prior to the start of procurement, the government distributes wheat bags called bardana to the farmers. The farmers then fill these bags with their harvest and transport them to the procurement stations.
The procurement process typically starts in early May and lasts for about one and a half months. In Punjab, there is usually more wheat production than the consumption requirement, while the other three provinces have a shortfall in wheat production. The deficit provinces meet their consumption needs by purchasing excess wheat from either the provincial food department of Punjab or PASSCO. These purchases are made based on the allocations determined by the Ministry of
Food and Agriculture and Livestock (MINFAL).
Private traders and wheat mills can only purchase wheat once the provincial governments have met their procurement goals. The mills' direct purchases of wheat amount to less than 10% of total production or one-quarter of the surplus available for sale. These figures demonstrate the limited involvement of the private sector in wheat procurement, as the provincial governments and PASSCO remain the primary participants. The procured wheat is stored by these entities in storage houses.
The wheat procured is gradually released and distributed to the flour mills on a quota basis. The mills may also purchase wheat from the open market for a limited time. The price charged to the mills for the government supplied wheat is called the issue price. In Punjab, the issue price is Rs1000 per 40 kg, while in Sindh it is Rs975 per 40 kg. This price includes the procurement price, transportation and storage costs, minus any subsidy. The flour mills then convert the purchased wheat into flour, also known as atta.
The ex mill price of wheat is 5 rupees per kg higher than the issue price, which is Rs 1000 per 40 kg or Rs 25 per kg. This ex mill price, approximately Rs 30 per kg, reflects the cost incurred by the flour mills in processing the wheat. Attar is supplied by the flour mills to both the market and the government. Retailers sell atta to final consumers at the retail price, while the government sells it at a subsidized rate through utility stores to poor consumers.
In addition to the utility stores, the provincial governments have also implemented their own schemes to assist poor consumers.
An example of such a welfare plan is the Sasti Roti scheme introduced by the government of Punjab. Under this scheme, the provincial government has established mechanical tandoors across the province to offer affordable roti to the underprivileged individuals. The next section examines the effectiveness and fulfillment of objectives of the wheat policy and welfare schemes mentioned above as perceived by the policymakers.
Section 3: Successes and failures of wheat policy
When developing a policy, policymakers have specific objectives and consider various alternatives. The chosen alternative is expected to be the most effective in achieving these objectives. Therefore, assessing the effectiveness of a policy involves determining if it has achieved its original goals.
The wheat market/price policy implemented by the government of Pakistan aimed to accomplish two main objectives:
- Ensuring greater access to food for the impoverished population, known as food security.
- Enhancing farmers' income by reducing price volatility.
To evaluate the success of the current wheat policy in achieving its first objective, we examine long-term trends in indicators commonly used to measure food security. These indicators include the percentage of undernourished individuals and the average food deficit among this group. Positive improvements in these trends would indicate that the current policy has successfully achieved its goal of ensuring food security.
Table: 1 Trends in the percentage of undernourished in South Asia|
The table and figure provided by FAO in 2011 show the percentages of undernourished populations for Pakistan, India, Bangladesh, and Southern Asia as a whole from 1990-92 to 2006-2008. Pakistan's percentage stayed constant at 25% during this time. In contrast, India's percentage decreased from 20% in 1990-92 to 19% in 2006-2008. Bangladesh started at a higher percentage of 38% in 1990-92but saw a decline to 26% in 2006-2008. The weighted average for Southern Asia remained stable at around twenty percent throughout the entire study period. These findings suggest an overall reduction in undernourishment across most South Asian countries, with particular emphasis on Bangladesh.
Despite a 5 percent decrease from 1990-1992 to 1995-1997, malnutrition in Pakistan has since increased, reaching 25 percent in 2006-2008 according to the World Bank. Furthermore, undernourishment in Pakistan rose by 2.1 percent from 2008-2009 due to a significant surge of 23 percent in wheat prices. Another measure of food security is the average food deficit faced by undernourished individuals, which is calculated by subtracting their minimum calorie requirement from their average per capita calorie intake.
According to FAO data, the average deficit of undernourished individuals in Pakistan remained unchanged at 280 kcal/person/day from 1990-92 to 2006-08. Despite efforts by Pakistan to implement a more consumer-oriented wheat policy, there has been no improvement in the food security situation for its people. Table 2 from FAO 2011 provides specific figures showing the average food deficit of the undernourished population in Pakistan during different time periods. The numbers indicate a deficit of 260 kcal/person/day in 1995-97 and consistently at 280 kcal/person/day in other years.
The primary objective of the current policy is to protect farmers from price fluctuations in the wheat market and ensure a stable income for them. To evaluate the achievement of this goal, we analyze two indicators. Firstly, we assess the changes in the producer price of wheat and compare them to fluctuations in farm gate prices in other countries in South Asia. Table 3 displays the differences in the producer price of wheat
for India, Pakistan, and Bangladesh over a span of ten years (2000-2009).
The price difference in wheat production is significantly lower in Pakistan compared to the other two countries. This indicates that Pakistan's wheat strategy has achieved at least one of its objectives. The table below shows the variation in producer price of wheat from 2000-2009 for different countries:
| Countries | Variation |
|---|---|
| Bangladesh | 2887.072 |
| India | 2096.636 |
| Pakistan | 1161.34 |
